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Kenya Monetary Policy January 2016

Kenya: Central Bank holds interest rate at 11.50% in first meeting of the year

January 20, 2016

At its first meeting of this year on 20 January, the Central Bank of Kenya (CBK) decided to hold the Central Bank Rate (CBR) at 11.50% for its fourth consecutive session. The Central Bank noted that the current level of the interest rate was adequate to anchor inflation expectations and to curb demand pressures, arguing that December’s jump in inflation was only transitory.

In the accompanying statement, the Bank noted that inflation rose to 8.0% in December, mainly driven by rising prices for seasonal food items. In the Bank’s view, “their impact on inflation is expected to dissipate by April.” As for economic growth, the CBK stated that GDP growth picked up in Q3 and that the Bank’s latest market perception survey pointed to improving business sentiment for this year.

The Bank added that the Kenyan shilling has been stable in recent weeks despite turmoil in global financial markets, partly thanks to a decreasing current account deficit on the back of falling oil prices, a recovery in tourism, tea exports and remittances inflows. Moreover, the Bank sees that currency reserves equivalent to 4.5 months of import cover and the precautionary deal with the IMF provide the country with sound buffers against external shocks.

Met the why particular Consensus Forecast panelists expect the Bank Rate to end 2016 at 11.07%. For 2017, panelists project the Bank Rate to decrease to 11.00%.

This rise in the latest composite Purchasing Managers’ Index (PMI) reading, produced by IHS Markit and Stanbic Bank, reflects the return of Kenya’s private sector to expansionary territory in the final leg of 2017 after contracting for eight consecutive months as the political scene, marred by months of protracted uncertainties, begins to stabilize.